Fresh Del Monte Produce Inc Annual Report

Transcription

1 Fresh Del Monte Produce Inc Annual Report A Global Diversified Food Company

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3 To Our Shareholders: 2010 was clearly a difficult year for Fresh Del Monte Produce. The difficulties we experienced were driven by a variety of factors that constrained our financial performance, with increased fruit procurement and production costs being our heaviest burden. During the year, we were adversely affected by severe weather at our banana operations in Guatemala, a drought at our Philippines banana operations and numerous other weather-related events in several fruit producing countries. The severe weather drove production levels lower, resulting in higher per box fruit costs. Compounding the weather issues were stronger currencies in several of our producing countries along with the negative impact of higher fuel and containerboard costs, which we were not able to fully offset. In addition, we were challenged by lower pricing in European and Asian banana markets for the year, compared with last year. Finally, each of our business segments was affected by the duration and extent of the weakness of the global economy. Although our 2010 financial performance was adversely impacted by significant operating challenges, I am pleased that we were able to make substantial progress in reducing costs and creating additional operating efficiencies which are expected to significantly strengthen our Company for the long-term. During the year, we looked at underutilized facilities and unprofitable areas in all our business lines and concluded, strategically and operationally, it made good business sense to sell our South African fruit canning facility, and consolidate the South African fruit production with our fruit canning operation in Greece. We believe the combined operations position us to create greater efficiencies and improve profitability in our prepared food business for the longterm. In addition, we made the decision to close a low yielding area in our Philippine banana operations that had been negatively impacted by plant disease. As a result, we expect improvement in our Asian banana business. During the year we made considerable strides towards improving our melon strategy. We ceased production and shipment of melons from Brazil and reduced production of traditional cantaloupe varieties in several of our production areas. In January 2011, we introduced our new MAG TM melon in key test markets to much acclaim, further differentiating and diversifying our global melon business. We believe the changes we are making strongly align our melon category with market demand and further demonstrate our expertise in product innovation, and continue our strong commitment to deliver a broad array of superior quality fresh fruit products to our customers. Our global port and logistics operations were also greatly improved in We sold four older vessels and replaced them with newer chartered ships with long-term contracts at favorable rates. We also relocated two of our port facilities to locations that offer expanded space and strategic opportunities to enable us to better serve our customers. In summary, 2010 was a tough year for Fresh Del Monte Produce. While we faced a number of hurdles, we substantially improved our business platform and still maintain a strong balance sheet which provides great flexibility to face the challenges and opportunities ahead. We feel good about our future; we have a quality team in place and we look forward to continuing to build our business for the long-term. We thank our shareholders for their continued support of Fresh Del Monte Produce and our management team. Mohammad Abu-Ghazaleh Chairman and Chief Executive Officer

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5 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2010 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to. Commission file number FRESH DEL MONTE PRODUCE INC. (Exact Name of Registrant as Specified in Its Charter) The Cayman Islands (State or Other Jurisdiction of Incorporation or Organization) c/o Walkers Corporate Services Limited Walker House, 87 Mary Street George Town, Grand Cayman, KY Cayman Islands (Address of Registrant s Principal Executive Offices) N/A (I.R.S Employer Identification No.) N/A (Zip Code) (305) (Registrant s telephone number including area code) Please send copies of notices and communications from the Securities and Exchange Commission to: c/o Del Monte Fresh Produce Company 241 Sevilla Avenue Coral Gables, Florida (Address of Registrant s U.S. Executive Offices) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Ordinary Shares, par value $0.01 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No The aggregate market value of Ordinary Shares held by non-affiliates at July 2, 2010, the last business day of the registrant s most recently completed second quarter, and was $802,352,679 based on the number of shares held by non-affiliates of the registrant and the reported closing price of Ordinary Shares on July 2, 2010 of $ The registrant does not have non-voting common stock outstanding. As of February 18, 2011, there were 58,787,283 Ordinary Shares of Fresh Del Monte Produce Inc. issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant s definitive Proxy Statement for the 2011 Annual General Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days after the end of the registrant s fiscal year are incorporated by reference in Part III of this report.

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7 TABLE OF CONTENTS PART I Page Item 1. Business 1 Item 1A. Risk Factors 15 Item 1B. Unresolved Staff Comments 21 Item 2. Properties 21 Item 3. Legal Proceedings 22 Item 4. [Reserved] 22 PART II Item 5. Market for Registrant s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 23 Item 6. Selected Financial Data 25 Item 7. Management s Discussion and Analysis of Financial Condition and Results of Operations 27 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 45 Item 8. Financial Statements and Supplementary Data 47 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 102 Item 9A. Controls and Procedures 102 Item 9B. Other Information 102 PART III Item 10. Directors, Executive Officers and Corporate Governance 102 Item 11. Executive Compensation 102 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 102 Item 13. Certain Relationships and Related Transactions, and Director Independence 102 Item 14. Principal Accountant Fees and Services 103 PART IV Item 15. Exhibits and Financial Statement Schedules 103 SIGNATURES 109 EXHIBIT INDEX 110

8 Forward-Looking Statements In this Annual Report (the Report ), references to $ and dollars are to United States dollars. References in this Report to Fresh Del Monte, we, our and us refer to Fresh Del Monte Produce Inc. and its subsidiaries, unless the context indicates otherwise. Percentages and certain amounts contained herein have been rounded for ease of presentation. Any discrepancies in any table between totals and the sums of amounts listed are due to rounding. As used herein, references to years ended 2008 through 2010 are to fiscal years ended December 26, 2008, January 1, 2010 and December 31, 2010, respectively. This Report, information included in future filings by us and information contained in written material, press releases and oral statements, issued by or on behalf of us contains, or may contain, statements that constitute forward-looking statements in particular, information in Item 1. Business and Item 7. Management s Discussion and Analysis of Financial Condition and Results of Operations Trend Information, contained in this Report In this Report, these statements appear in a number of places and include statements regarding the intent, beliefs or current expectations of us or our officers (including statements preceded by, followed by or that include the words believes, expects, anticipates or similar expressions) with respect to various matters, including our plans and future performance. These forward-looking statements involve risks and uncertainties. Fresh Del Monte s actual plans and performance may differ materially from those in the forward-looking statements as a result of various factors, including (i) the uncertain global economic environment and the timing and strength of a recovery in the markets we serve, and the extent to which adverse economic conditions continue to affect our sales volume and results, including our ability to command premium prices for certain of our principal products, or increase competitive pressures within the industry, (ii) the impact of governmental initiatives in the United States and abroad to spur economic activity, including the effects of significant government monetary or other market interventions on inflation, price controls and foreign exchange rates, (iii) the impact of governmental trade restrictions, including adverse governmental regulation that may impact our ability to access certain markets, (iv) our anticipated cash needs in light of our liquidity, (v) the continued ability of our distributors and suppliers to have access to sufficient liquidity to fund their operations, (vi) trends and other factors affecting our financial condition or results of operations from period to period, including changes in product mix or consumer demand for branded products such as ours, particularly as consumers remain price-conscious in the current economic environment; anticipated price and expense levels; the impact of crop disease, severe weather conditions, such as the recent adverse weather conditions in our banana production areas, or natural disasters, such as earthquakes, on crop quality and yields and on our ability to grow, procure or export our products; the impact of prices for petroleum-based products and packaging materials; and the availability of sufficient labor during peak growing and harvesting seasons, (vii) the impact of pricing and other actions by our competitors, particularly during periods of low consumer confidence and spending levels, (viii) the impact of foreign currency fluctuations, (ix) our plans for expansion of our business (including through acquisitions) and cost savings, (x) our ability to successfully integrate acquisitions into our operations, (xi) the impact of impairment or other charges associated with exit activities, crop or facility damage or otherwise, (xii) the timing and cost of resolution of pending legal and environmental proceedings, (xiii) the impact of changes in tax accounting or tax laws (or interpretations thereof), and the impact of settlements of adjustments proposed by the Internal Revenue Service or other taxing authorities in connection with our tax audits, and (xiv) the cost and other implications of changes in regulations applicable to our business, including potential legislative or regulatory initiatives in the United States or elsewhere directed at mitigating the effects of climate change. All forward-looking statements in this report are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. The forward-looking statements are not guarantees of future performance and involve risks and uncertainties. It is important to note that our actual results may differ materially from those in the forward-looking statements as a result of various factors. The accompanying information contained in this Report, identifies important factors that could cause our actual results to differ materially from those in the forward-looking statements. The volume data included in this Report has been obtained from our records. Except for volume data for Fresh Del Monte, the market share, volume and consumption data contained in this Report have been compiled by us based upon data and other information obtained from third-party sources, primarily from the Food and Agriculture Organization of the United Nations (the FAO ), and from our surveys of customers and other company-compiled data. Except as otherwise indicated, volume data contained in this Report is shown in millions of 40-pound equivalent boxes.

9 Item 1. Business History and Development of Fresh Del Monte PART I Our legal name is Fresh Del Monte Produce Inc., and our commercial name is Del Monte Fresh Produce. We are an exempted holding company, incorporated under the laws of the Cayman Islands on August 29, At December 31, 2010, the close of our most recent fiscal year, members of the Abu-Ghazaleh family directly owned 35.3% of our outstanding Ordinary Shares. Our principal executive office is located at Walker House, 87 Mary Street, George Town, Grand Cayman, KY1-9002, Cayman Islands. The address of our U.S. executive office is located at Del Monte Fresh Produce Company, 241 Sevilla Avenue, Coral Gables, Florida Our telephone number at our U.S. executive office is (305) Our Internet address is The electronic version of this Annual Report on Form 10-K, along with other information about us, our operations and our results and other documents filed with the Securities and Exchange Commission (the SEC ) can be found on our Web site. Information on our Web site is not a part of this Report on Form 10-K. Our global business, conducted through subsidiaries, is primarily the worldwide sourcing, transportation and marketing of fresh and fresh-cut produce together with prepared food products in Europe, Africa and the Middle East. We source our fresh produce products (bananas, pineapples, melons, tomatoes, grapes, apples, pears, peaches, plums, nectarines, cherries, citrus, avocados, blueberries and kiwi) primarily from Central and South America, Africa, the Philippines, North America and Europe. We source our prepared food products primarily from Africa, Europe, the Middle East and Asia. Our products are sourced from company-owned operations, through joint venture arrangements and through supply contracts with independent producers. We distribute our products in North America, Europe, Asia, the Middle East, Africa and South America. On June 6, 2008, we acquired all of the shares of Desarollo Agroindustrial de Frutales, S.A., a producer of high-quality bananas in Costa Rica; all of the shares of Frutas de Exportacion, S.A., a major producer of gold pineapples in Costa Rica; and all of the shares of an affiliated sales and marketing company, collectively known as Caribana. The purchase price for Caribana was $405.9 million plus $2.9 million for acquisition-related expenses, financed with $88.5 million in cash on hand and drawings under our then-existing syndicated revolving credit facility. As a result of this acquisition, our land holdings in Costa Rica increased by approximately 13,000 hectares of quality farm land producing approximately 13 million boxes of bananas and 11 million boxes of gold pineapples annually. We also acquired state-of-the-art packing facilities, as well as modern farming equipment. Caribana s extensive production area substantially increased our presence in the banana market and further strengthened our number one position in the gold pineapple market. The close proximity of Caribana s production and packing operations to our existing farms has provided significant operating efficiencies and synergies. This transaction has enabled us to continue to capitalize on the growing global demand for fresh produce and to expand our reach into existing and new markets. On June 27, 2008, we acquired certain operating assets, excluding land, of Melones de Costa Rica, S.A. ( MCR ). MCR is a 50%-owned unconsolidated subsidiary that produced melons for us in Costa Rica. MCR continues to own the land that is leased to us on a long-term basis. The purchase price was $8.0 million. During the third quarter of 2008, we also acquired two additional melon operations in Guatemala. The assets acquired comprised principally farming equipment, packing sheds and materials and supplies inventory. The purchase price was $13.9 million. Our capital expenditures totaled $70.8 million in 2010, consisting of approximately $31.0 million, principally for expansion of production facilities in Guatemala, Costa Rica and Brazil combined with improvements to our port facilities in North America and distribution facilities in Saudi Arabia related to the banana segment. We also spent approximately $33.1 million principally for expansion of production facilities in Costa Rica, Guatemala, Chile and the Philippines and fresh-cut facilities in the United States and the United Kingdom related to the other fresh produce segment and $6.7 million principally for expansion of production facilities in Kenya, Greece and Jordan related to the prepared food segment. Our capital expenditures totaled $84.5 million in 2009, consisting of approximately $51.4 million primarily for distribution centers in Saudi Arabia and for expansion of production facilities in Costa Rica, Guatemala, Brazil and the Philippines related to the banana segment, $27.8 million principally for expansion of our pineapple operations in Costa Rica and the Philippines, expansion of non-tropical fruit operations in Chile and expansion of fresh-cut fruit facilities in North America and the United Kingdom related to the other fresh produce segment and $5.3 million for expansion of production facilities in Jordan and Kenya related to the prepared food segment. Our capital expenditures totaled $101.5 million in 2008, consisting of $59.4 million principally for distribution centers in Saudi Arabia and South Korea and for expansion of production facilities in the Philippines, Guatemala and Brazil related to the banana segment, $23.1 million principally for expansion of production facilities in Costa Rica, the Philippines and Chile related to the other fresh produce segment and $19.0 million principally for production facilities in Jordan and Kenya related to the prepared food segment. The principal capital expenditures planned for 2011 consist primarily of the expansion of production facilities in Costa Rica, Guatemala, Chile, Kenya, Jordan and Greece and for our distribution and fresh-cut facilities in Saudi Arabia, North America and the United Kingdom. 1

10 Business Overview We are one of the world s leading vertically integrated producers, marketers and distributors of high-quality fresh and freshcut fruit and vegetables, as well as a leading producer and distributor of prepared fruit and vegetables, juices, beverages and snacks in Europe, Africa and the Middle East. We market our products worldwide under the DEL MONTE brand, a symbol of product innovation, quality, freshness and reliability since Our global sourcing and logistics network allows us to provide regular delivery of consistently high-quality fresh produce, juices, beverages, processed fruit and vegetables and value-added services to our customers. We have leading market positions in the following product categories. We believe we are: the number one marketer of fresh pineapples worldwide, including our Del Monte Gold Extra Sweet pineapple; the third-largest marketer of bananas worldwide; a leading marketer of branded fresh-cut fruit in the United States and the United Kingdom; a leading re-packer of tomatoes in the United States; a leading year-round marketer of branded grapes in the United States; a leading marketer of branded non-tropical fruit in selected markets; and a leading marketer for canned fruit and pineapple in the European Union (EU) and other European markets. We source and distribute our fresh produce products on a global basis. Our products are grown primarily in Central and South America, Africa and the Philippines. We also source products from North America and Europe. Our products are sourced from company-controlled farms and independent growers. We transport our fresh produce to markets using our fleet of 12 owned and 14 chartered refrigerated vessels, and we operate four port facilities in the United States. At year end 2010, we operated 43 distribution centers, generally with cold storage and banana ripening facilities in our key markets worldwide, including the United States, the United Kingdom, Germany, Japan, South Korea, Hong Kong, Poland, the United Arab Emirates and Saudi Arabia. We also operate 14 fresh-cut facilities in the United States, the United Kingdom, Japan, the United Arab Emirates and Saudi Arabia, some of which are located within our distribution centers. Through our vertically integrated network, we manage the transportation and distribution of our products in a continuous temperature-controlled environment. This enables us to preserve quality and freshness, and to optimize product shelf life, while ensuring timely and year-round distribution. Furthermore, our position as a volume producer and shipper of bananas allows us to lower our average per-box logistics cost and to provide regular deliveries of our premium fresh fruit to meet the increasing demand for year-round supply. We market and distribute our products to retail stores, food clubs, wholesalers, distributors and foodservice operators in more than 100 countries around the world. North America is our largest market, accounting for 49% of our net sales in Europe, Asia and the Middle East regions are our other major markets, accounting for 26%, 12% and 12% of our net sales in 2010, respectively. Our distribution centers and fresh-cut facilities address the growing demand from supermarket chains, club stores, mass merchandisers and independent grocers to provide value-added services, including the preparation of fresh-cut produce, ripening, customized sorting and packing, just-in-time and direct-store-delivery and in-store merchandising and promotional support. Large national retail chains are increasingly choosing fewer suppliers ones that can serve all of their needs on a national basis and there is a significant opportunity for a company with a full fresh and fresh-cut produce line, a well-recognized brand, a consistent supply of quality produce and a national distribution network to become the preferred supplier to these large retail customers. We believe that we are uniquely positioned as a preferred supplier, and our goal is to expand on this status by increasing our leading position in fresh-cut produce, expanding our banana, pineapple and melon business and diversifying our other fresh produce selections. We are a multinational company offering a variety of fresh produce in all major markets along with fresh-cut produce in selected markets and a prepared food product line that includes prepared fruit and vegetables, juices, beverages and snacks in Europe, Africa, the Middle East and countries formerly part of the Soviet Union. 2

11 Our strategy is focused on a combination of maximizing revenues from our existing infrastructure, entering new markets and strict cost control initiatives. We plan to continue to capitalize on the growing global demand for fresh produce and expand our reach into existing and new markets. We expect sales growth of fresh produce in key markets by increasing sales volume and per unit sales prices as permitted by market conditions. Our 2008 acquisitions substantially increased our production capability of bananas and pineapples and continue to provide the potential over time for further operating efficiencies and synergies. In addition, our number one position in the gold pineapple market has been further strengthened. Our strategy includes increasing volumes from existing production and distribution facilities in order to improve operating efficiencies and reduce per unit costs. We plan additional investments in production facilities in order to expand our product offering in established markets and continue with our recent expansion in growth markets, such as the Middle East, Africa and countries formerly part of the Soviet Union. Products Sourcing and Production Our products are grown and sourced primarily in Central and South America, Africa and the Philippines. We also source products from North America and Europe. In 2010, 45% of the fresh produce we sold was grown on company-controlled farms and the remaining 55% was acquired through supply contracts with independent growers. Costa Rica is our most significant sourcing location representing approximately 36% of our total sales volume of fresh produce products and where we have 42% of our property, plant and equipment in We produce, source, distribute and market a broad array of fresh produce throughout the world, primarily under the DEL MONTE brand, as well as under other proprietary brands, such as UTC and Rosy. We also produce, distribute and market prepared fruits and vegetables, juices, beverages and snacks under the DEL MONTE brand, as well as other proprietary brands, such as Fruit Express, Just Juice, Fruitini and other regional trademarks in Europe, Africa, the Middle East and countries formerly part of the Soviet Union. The following table indicates our net sales by product for the last three years: Year ended December 31, January 1, December 26, (U.S. dollars in millions) Net sales by product category: Banana $1, % $1, % $1, % Other fresh produce: Gold pineapples % % % Fresh-cut produce % % % Non-tropical fruit % % % Melons % % % Tomatoes % % % Vegetables % % % Other fruit % % % Total other fresh produce 1, % 1, % 1, % Prepared food % % % Other products and services % % % Total $3, % $3, % $3, % See Note 24, Business Segment Data, to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data for further information. 3

12 Bananas Bananas are the leading internationally traded fresh fruit in terms of volume and dollar sales and the best-selling fresh fruit in the United States. Europe and North America are the world s largest banana markets and Asia is the third largest market. According to the latest published statistics from the Food and Agriculture Organization of the United Nations ( FAO ), in 2008, Europe, North America, Asia and the Middle East consumed 19.3, 9.8, 4.3 and 1.3 billion pounds of bananas, respectively. Bananas are a key produce department product due to their high turnover and the premium margins realized by grocers. Bananas have a relatively short growing cycle and are grown in tropical locations with humid climates and heavy rainfall, such as Central and South America, the Caribbean, the Philippines and Africa. Bananas are grown throughout the year in these locations, although demand and prices fluctuate based on the relative supply of bananas and the availability of seasonal and alternative fruit. We believe that we are the world s third-largest marketer of bananas, based on internally generated data. Our banana sales in North America, Europe, Asia and the Middle East accounted for approximately 44%, 25%, 18% and 13% of our net sales of bananas in 2010, respectively. We produced 35% of the banana volume we sold in 2010 on company-controlled farms, and we purchased the remainder from independent growers. Bananas are the best-selling fresh produce item, as well as a high-margin product for many of our customers. Accordingly, our ability to provide our customers with a year-round supply of high-quality DEL MONTE bananas is important to maintaining our existing customer relationships and attracting new customers. Our position as a volume shipper of bananas has also allowed us to make regular shipments of a wide array of other fresh produce, such as pineapples, melons and plantains, reducing our average perbox logistics costs and maintaining higher quality produce with a longer shelf life. We produce bananas on company-controlled farms in Costa Rica, Guatemala, Brazil, Cameroon and the Philippines and we purchase bananas from independent growers in Costa Rica, Ecuador, Colombia, Guatemala and the Philippines. Although our supply contracts are primarily long-term, we also make purchases in the spot market, primarily in Ecuador. In Ecuador and Costa Rica, there are minimum export prices for the sale of bananas, which are established by the respective governments and reviewed by them on a periodic basis. Due in part to limitations in the Philippines on foreign ownership of land, we purchase the majority of bananas in the Philippines through long-term contracts with independent growers. Approximately 76% of our Philippine-sourced bananas are supplied by one grower, representing 14% of the Philippines banana industry volume in In the Philippines, we have leased approximately 2,000 hectares of land where we have planted bananas for the Asia market. Due to disease affecting an isolated growing area of our bananas in the Philippines, during the fourth quarter of 2010, we decided to abandon those affected areas. As a result of this decision, we reduced our growing area from approximately 2,000 to 850 hectares and recorded $12.7 million in asset impairments as of December 31, Gold Pineapples Pineapples are grown in tropical and sub-tropical locations, including the Philippines, Costa Rica, Hawaii, Thailand, Malaysia, Brazil, Indonesia and various countries in Africa. In contrast to bananas, pineapples have a long growing cycle of 18 months, and require re-cultivation after one to two harvests. Pineapple growing thus requires a higher level of capital investment, as well as greater agricultural expertise. The premium pineapples, such as our Del Monte Gold Extra Sweet pineapple, which has enhanced taste, golden shell color, bright yellow flesh and higher vitamin C content, has replaced the Champaka and other traditional pineapple varieties in popularity and demand and has led to increased competition. We believe we are the market leader of fresh pineapples worldwide, based on internally generated data. Pineapple sales in North America, Europe, Asia and the Middle East accounted for 52%, 31%, 14% and 3% of our net sales of pineapples in 2010, respectively. From 1996 to 2010, our volume of the Del Monte Gold Extra Sweet pineapple increased from two and a half million boxes to 29.2 million boxes. Our pineapple volume has increased by 6% this year. Based on FAO data, for the 10-year period from 1998 to 2008, the volume of pineapple sales in the United States, Europe, Asia and the Middle East has increased by 194%, 258% and 76% and 1,955%, respectively. We believe that a substantial portion of this growth is due to our introduction of the Del Monte Gold Extra Sweet pineapple. As a result of our continued expansion of existing pineapple operations, we expect to continue to increase the sales volume of our extra sweet pineapples in the near future with extra sweet pineapples grown in Costa Rica and the Philippines. 4

13 The principal production and procurement areas for our gold pineapples are Costa Rica and the Philippines. Given the complexity of pineapple cultivation relative to our bananas, a higher percentage of the fresh pineapples we sell (80% by volume in 2010) are produced on company-controlled farms. Fresh-Cut Produce Fresh-cut produce first gained prominence in many U.S. and European markets with the introduction of washed and cut vegetables. While packaged salads continue to lead the category of fresh-cut produce sales, the category has expanded significantly to include gold extra sweet pineapple, melons, mango, grapes, citrus and assorted vegetable produce items that are washed, cut and packaged in a ready-to-use form. Market expansion has been driven largely by consumer demand for fresh, healthy and ready-to-eat food alternatives, as well as significant demand from foodservice operators. Within this market, we believe that there has been increasing differentiation between companies active primarily in the packaged salad market and other companies, like us, that can offer a wide variety of fresh-cut fruit and vegetable items. The majority of fresh-cut produce is sold to consumers through retail store and club store settings, as well as nonconventional settings such as convenience stores, gas stations and airports. We believe that outsourcing by food retailers will increase, particularly as food safety regulations become more stringent and retailers demand more value-added services. This trend should benefit large branded suppliers like us, who are better positioned to invest in fresh-cut facilities and to service regional and national chains and foodservice operators, as well as supercenters, mass merchandisers and club stores. We also believe that large branded suppliers benefit from merchandising, branding and other marketing strategies for fresh-cut products, similar to those used for branded processed food products, which depend substantially on product differentiation. We believe that the fresh-cut produce market continues to be one of the fastest-growing categories in the fresh produce segment, largely due to consumer trends favoring healthy and conveniently packaged ready-to-eat foods. We established a platform in this industry through acquisitions and by building upon our existing fresh-cut pineapple business. We believe that our experience in this market, coupled with our sourcing and logistics capabilities and the DEL MONTE brand, have enabled us to achieve a leading position in this highly fragmented market. Based on the latest supermarket scan data as supplied by an independent market data provider for 2010, we believe that we continue to be the market leader in branded fresh-cut fruit in the United States. Our fresh-cut fruit products include pineapple, melons, grapes, citrus, apples, mango, kiwi and other fruit items. The fruit we use in our fresh-cut operations are sourced within our integrated system of company-controlled farms and from GAP-certified (good agricultural practices) independent growers. We also offer fresh-cut vegetables for prepared salads, such as coleslaw and potato salad. We purchase our vegetables for these purposes from GAP-certified independent growers in the United States and in Europe. Our purchase contracts for both fruit and vegetables are typically short-term but vary by produce item. Our fresh-cut products are sold in the United States, the United Kingdom, the Middle East and Japan. Non-Tropical Fruit Non-tropical fruit includes grapes, apples, pears, peaches, plums, nectarines, cherries, avocados, citrus and kiwis. Generally, non-tropical fruit grows on trees, bushes or vines that shed their leaves seasonally. Approximately 42% of our non-tropical fruit net sales are from the sale of grapes. Fresh grapes are a favorite quick, easy and healthy snack among consumers young and old. In addition to their delicious taste, a growing body of research on fresh grapes suggests that grapes may offer significant health benefits as well. Fresh grapes are a well-known fruit worldwide, fitting into almost any lifestyle. Based on the United States Department of Agriculture ( USDA ), Economic Research Service, fresh grape consumption has grown 19% between 1998 and 2008 in the United States and, on average, Americans consumed 8.5 pounds of fresh grapes in Fresh grapes are also processed for the production of wine, raisins, juices and canned products. The higher production cost and higher product value of fresh grapes result from more intensive production practices than are required for grapes grown for processing. While California supplies the majority of total grape volumes, imports have made fresh grapes available year-round in the United States, with shipments mostly from Chile. Most U.S. production is marketed from May to October. Chilean grapes dominate the market from December to April. Approximately 18% of our non-tropical fruit net sales are from the sale of avocados. According to the latest published statistics from the USDA, for the 10-year period from 1999 to 2008, avocado imports to the United States have increased by 449%. Per capita consumption of avocados in the United Sates has also increased significantly in the last 10 years. According to the Economic Research service of the USDA, per capita consumption of avocados reached 3.7 pounds during

14 We sell a variety of non-tropical fruit, including all of the types referred to above. In 2010, non-tropical fruit sales in North America, Europe, the Middle East, Asia and South America accounted for approximately 54%, 8%, 22%, 11% and 5% of our total net sales of non-tropical fruit, respectively. We obtain our supply of non-tropical fruit from company-owned farms in Chile and from independent growers in Chile, the United States, Mexico, Spain and New Zealand. In Chile, we purchase non-tropical fruit from independent growers and also produce a variety of non-tropical fruit on approximately 5,100 acres of company-owned or leased land. Our avocados are sourced principally from Mexico. In Spain and Mexico, we have our own sourcing operations, ensuring a consistent supply of high-quality non-tropical fruit during the growing season. Purchase contracts for non-tropical fruit are typically made on an annual basis. Melons Based on FAO data, for the 10-year period from 1998 to 2008, the volume of imports of cantaloupes and other melons increased in North America, Europe and the Middle East by 4%, 65% and 104%, respectively and decreased by 12% in Asia. Melons are one of the highest volume fresh produce items, and this category includes many varieties, such as cantaloupe, honeydew and watermelon. During the summer and fall growing seasons in the United States and Europe, demand is met in large part by local suppliers of unbranded or regionally branded melons. By contrast, in North America and Europe, imports significantly increase, and melons generally command premium pricing from October to May. Melons are grown in temperate and tropical locations and have a relatively short growing cycle. We sell a variety of melons including cantaloupe, honeydew, watermelon and specialty melons, which we introduced to meet the different tastes and expectations of consumers in Europe. Cantaloupes represented over 73% of our melon sales volume in We are a significant producer and distributor of melons from October to May in North American and European regions by sourcing melons from our company-controlled farms and independent growers in Central and South America, where production generally occurs during this period. Melons sold in North America and Europe from October to May generally command a premium price due to the relative scarcity of melons and alternative fruit. Melon sales in North America and Europe accounted for 88% and 12% of our net sales of melons in 2010, respectively. In terms of volume, we produced 89% of the melons we sold in 2010 on company-controlled farms and purchased the remainder from independent growers. We are able to provide our customers with a year-round supply of melons from diverse sources. For example, we supply the North American market during its summer season with melons from Arizona, California and the East Coast of the United States, and we supply the European market during its summer season with melons from Spain. We have devoted significant research and development efforts towards maintaining our expertise in melons, especially cantaloupes. Melon crop yields are highly sensitive to weather conditions and are adversely affected by high levels of precipitation during the growing period of the fruit. We have developed specialized melon growing technology that we believe has reduced our exposure to the risk of intemperate weather conditions and significantly increased our yields. Tomatoes The United States is one of the largest producers of tomatoes in the world, ranking second only to China. Mexico and Canada are also important suppliers of fresh tomatoes within North America. Based on information available at producemarketplace.com, an industry website, in 2009, fresh tomatoes remained a top performer for food retailers, generating approximately 7.2% of a retailers total produce sales. We source our fresh tomatoes mainly from the United States, Mexico, Canada, Guatemala and El Salvador. The tomato category is highly fragmented with many suppliers, re-packers and wholesalers in various geographic regions of the United States. As a high volume item, tomatoes are important for our network of distribution and re-packing facilities. This product category allows us to add value through leveraging our purchase volumes to reduce costs and perform the sorting, packaging and custom labeling locally, in addition to delivering on a just-in-time basis to retail chains and foodservice customers. With our fresh-cut fruit and vegetable facilities, we can add additional value by incorporating tomatoes into our consumer-packaged products. We have spent approximately $9.0 million developing greenhouse tomato operations in Guatemala. In 2011, we plan to source additional volumes from this location. Vegetables We distribute and market a variety of vegetables including mainly potatoes, onions, bell peppers and cucumbers. While we sell bulk product, we also use our size and distribution network to find opportunities to add value such as sorting and packaging. We source our vegetables from independent growers in North and Central America. 6

15 Other Fruit We produce, distribute and market a variety of other fruit, including strawberries, plantains and mangos, as well as various other varieties of fruit. We source these other fruit items from company-controlled farms and independent growers in Costa Rica, Colombia, Guatemala and the United States. Prepared Food We have a royalty-free perpetual license to use the DEL MONTE Trademark in connection with the production, manufacture, sale and distribution of prepared foods and beverages in over 100 countries throughout Western, Eastern and Central Europe, Africa, the Middle East and countries formerly part of the Soviet Union. Del Monte has operated in Europe for over 75 years, is the premier brand associated with fruit-based or fruit-derived products and is the leading brand for canned fruit and pineapple in many Western European markets. Del Monte has had a presence in the United Kingdom, the largest market, since 1926 and is perceived to be a quality brand with high consumer awareness. Del Monte has a reputation with both consumers and retailers for value, quality and reliability. We produce, distribute and market prepared pineapple, peaches, fruit cocktail, pears, tomatoes and other fruit and vegetables. Our deciduous prepared food products, which include peaches, pears and fruit cocktail are principally sourced from our own facilities in Greece and South Africa. During the fourth quarter of 2010, we sold our deciduous canning production facility in South Africa, which will allow us to consolidate the production of peach and fruit cocktail prepared food products in our Greek facility in Other deciduous products will be sourced primarily from South Africa. Our tomato products are sourced from independent producers in Europe and the Middle East. Our prepared pineapple products are primarily sourced from our own facility in Kenya and are also sourced from independent producers in Asia. These products are sold primarily under the DEL MONTE label and under the buyers own label for major retailers. We also distribute and market beverages, including ambient juices and juice drinks as well as various snacks. We also produce and market industrial products that are composed of fruit that has been processed in our production facilities in the form of purees, pulps and concentrates for further processing (juices, yogurt, cake manufacture, pizza, etc.) and for sale to the foodservice industry worldwide. We expect to continue investing in new product development to increase revenue, defend our premium price position and maintain market leadership in our product categories. We plan to expand our offerings in the snack category by offering multiple varieties and sizes of fruit in plastic pots with new and improved recipes and various juice bars, targeting the convenience store and foodservice trade in selected European and Middle East markets. Our prepared food segment also includes our Jordanian food business. This business includes a state-of-the-art vertically integrated poultry business, including poultry farms, a grain mill, a slaughterhouse and a meat processing plant in Jordan. Our Jordanian poultry business is the leading provider of poultry products to retail stores and foodservice operators in that country. The newly established meat processing operation provides meat products for the Jordanian market and to other Middle East and North African markets. Other Products and Services Our other products and services include our third-party ocean freight business, our third-party plastics and box manufacturing business and our Argentine grain business. Our third-party ocean freight business allows us to generate incremental revenue on vessels return voyages to our product sourcing locations and when space is available on outbound voyages to our major markets, which reduces our overall shipping costs. During the fourth quarter of 2009, as a result of unfavorable economic conditions, we eliminated our third-party ocean freight service from North Europe to the Caribbean. Our plastics and box manufacturing business produces bins, trays, bags and boxes. Although this business is intended mainly to satisfy internal packaging requirements, we also sell these products to third parties. In 2010, as a result of continued under-performance, we discontinued our grain operation and sold our grain silos in Argentina. Logistics Operations We market and distribute our products to retail stores, foodservice operators, wholesalers and distributors in more than 100 countries around the world. As a result, we conduct complex logistics operations on a global basis, transporting our products from the countries in which they are grown to the many markets in which they are sold worldwide. Maintaining fruit at the appropriate temperature is an important factor in preventing premature ripening and optimizing product quality and freshness. Consistent with our reputation for high-quality fresh produce, we must preserve our fresh fruit in a continuous temperature-controlled environment, beginning with the harvesting of the fruit in the field through its distribution to our end markets. 7

16 We have a fully integrated logistics network, which includes land and sea transportation through a broad range of refrigerated environments in vessels, port facilities, containers, trucks and warehouses. Our objective is to maximize utilization of our logistics network to lower our average per-box logistics cost, while remaining sufficiently flexible to redeploy capacity or shipments to meet fluctuations in demand in our key markets. We believe that our control of the logistics process is a competitive advantage because we are able to continuously monitor and maintain the quality of our produce and ensure timely and regular distribution to customers on a year-round basis. Because logistics costs are also our largest expense other than our cost of products, we devote substantial resources to managing the scheduling and availability of various means of reliable transportation. We transport our fresh produce to markets worldwide using our fleet of 12 owned and 14 chartered refrigerated vessels. During 2010, we sold four of our older, less efficient vessels and took delivery of two Japanese built vessels capable of carrying approximately 430, pound boxes of palletized and containerized fruit. We believe that our fleet of owned vessels, combined with longer-term charters, is effective in reducing our ocean freight costs and mitigates our exposure to the volatility of the charter market. We also operate a fleet of approximately 4,500 refrigerated containers, which are 48% owned or under capital leases, and the remaining 52% are under operating leases. Our logistics system is supported by various information systems. As a vertically integrated food company, managing the entire distribution chain from the field to the customer requires the technology and infrastructure to be able to meet our customers complex delivery needs. Sales and Marketing DEL MONTE is a 118-year old brand that is recognized by consumers worldwide for quality, freshness and reliability. We employ a variety of marketing tools, including but not limited to advertising, public relations and promotions, to reinforce our brand equity with consumers and the trade. Depending on the product and market, we also provide technical, logistical and merchandising support aimed at safeguarding the superior quality of our products to the ultimate consumer. Our sales and marketing activities are conducted by our sales force located at our sales offices worldwide and at each of our distribution centers. Our commercial efforts are supported by marketing professionals located in key markets and regional offices. A key element of our sales and marketing strategy is to use our distribution centers as a means of providing value-added services for our customers. We actively support our customers through technical training in the handling of fresh produce, in-store merchandising support, joint promotional activities, market research and inventory and other logistical support. Since most of our customers carry only one branded product for each fresh produce item, our marketing and promotional efforts for fresh produce emphasize trade advertising and in-store promotions. One of our most recent innovations is our new Controlled Ripening Technology ( CRT ) banana packaging. Launched in October 2009, our proprietary, patent pending CRT packaging was created for individual single-serve packages and for our 40-pound bulk banana boxes. This packaging utilizes state-of-the-art technology to help improve the ripening and handling process while helping retailers increase banana sales, reduce product losses and maximize profits by extending the product s yellow shelf life. It also allows us to deliver to our customers the highest quality fruit. As a result of this CRT packaging, we are able to broaden our distribution channels to include vending machines and expand our product offerings to our convenience store and foodservice customer base. The level of marketing investment necessary to support the prepared food business is significantly higher than that required for the fresh produce and fresh-cut fruit and vegetable business. We have utilized a variety of promotional tools to build the DEL MONTE brand and engage consumers in key markets in Europe, Africa and the Middle East. In recent years, we implemented a new strategy for the prepared food business in certain key European markets consisting of utilizing distributors to perform product distribution, sales and marketing activities. Under these agreements, the sales, warehousing, logistics, marketing and promotion functions are all performed by the distributor. This strategy of utilizing independent distributors enables us to reduce distribution and sales and marketing expenses. In addition, we plan to expand our prepared food business by entering new markets in Eastern Europe, Africa and the Middle East and by expanding our offerings in the snack category, targeting the convenience store and foodservice trade in selected European and Middle East markets. During 2010, one customer, Wal-Mart, Inc. (including its affiliates), accounted for approximately 13% of our total net sales. These sales are reported in our banana, other fresh produce and prepared food segments. No other customer accounted for 10% or more of our net sales. In 2010, the top 10 customers accounted for approximately 34% of our net sales. Note 24, Business Segment Data included in Item 8. Financial Statements and Supplementary Data contains information regarding net sales to external customers attributable to each of our reportable segments and geographic regions, gross profit by each of our reportable segments, total assets attributable to each of our geographic regions, and information concerning the dependence of our reportable segments on foreign operations, for each of the years 2010, 2009 and